In risk arbitrage the following is true:
A)Investors may expect the bidder's stock price to fall
B)Investors may expect the target's stock price to rise
C)Both a and b
D)Neither a and b

Question

Quizplus · Accepted Answer

In risk arbitrage, investors take advantage of price discrepancies between a bidder's and a target's securities during a merger or acquisition. The price discrepancies arise due to the uncertainty regarding the outcome of the transaction. If the market believes that the deal will be successful, the target's stock price may rise, and the bidder's stock price may fall. On the other hand, if the market believes that the deal will not be successful, the target's stock price may fall, and the bidder's stock price may rise. Therefore, both options A and B may be true in risk arbitrage.

In Risk Arbitrage the Following Is True